The federal market, where MWH derives more than a fifth of its revenue, is in flux. The Energy Dept.’s environmental management branch is pushing to increase small-fry participation in cleanup contracts to 25%. DOE has a pretty good record for small-business set-asides, accounting for 86% of the agency’s total contracts by number and 35% by value, says Alan Farkas, principal with Washington, D.C.-based analyst Farkas Berkowitz & Co. A January White House directive decreed that subcontracts no longer would count toward the goals, Farkas says.

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“This shows the power of small business in the Bush administration,” Farkas says. According to his firm’s recent report on the state of the industry, DOE’s environmental management budget for Fiscal Year 2005 is up 5% to $7.5 billion and several multiyear, multimillion-dollar cleanup contracts are up for competition. These include remediation and infrastructure jobs at Portsmouth, Ohio and Paducah, Ky.; the Columbia River Corridor and Fast Flux efforts at Hanford, Wash.; and the Savannah River Focus Procurement.

Observers say that effort will push $750 million in indefinite delivery, indefinite quantity cleanup funding to about 15 contractors. In addition, all national labs are recompeting their management and operations contracts.

Taken together, “there is a huge opportunity for small businesses,” says Farkas. There is a mad scramble to build teams to respond to requests for proposals and small contractors must find a partner with a track record and a strong financial balance sheet, he says.

For a large contractor, shifting from a prime to a subcontractor role “doesn’t make much sense from a risk management standpoint,” says Uhler.

Washington Group International, a major player in the federal market place (No. 5 overall, No. 3 in federal work) is teamed with BWX Technologies Inc. and Battelle Memorial Institute (No. 12) for the Idaho national lab contract, “but we don’t make final arrangements until we see the RFP,” says Jack Hermann, WGI spokesman.

It will be “nearly impossible” for DOE to achieve its set-aside goals unless it assists large contractors with Small Business Administration mentoring program guidelines, says Mike Rengel, CH2M Hill senior vice president of nuclear business development. “We are not going to subcontract on any significant project unless SBA mentor/protégé guidelines are in effect,” he says. The SBA program affords “some measure of control” to a contractor, especially “where we’d inherit a work force,” he says.

Philip Strawbridge, president of BNFL Inc. (No. 23 overall, No. 5 in nuclear) says the nuclear remediation project specialist will be in the scramble for more than $20 billion worth of Energy Dept. contracts, but as a technical provider, not as a team leader.

The commercial nuclear decommissioning market still is three to five years out, says Strawbridge. Many nuclear reactors are nearing the end of their design life and most observers thought the market would be hot by now. “But no one thought the Nuclear Regulatory Commission would extend the operating licenses for the plants for five to 10 years,’’ he says.

BNFL now is completing the decommissioning of Big Rock Point in Michigan. There were no schedule delays or cost overruns on the six-year cleanup, Strawbridge says. In three to five years, there will be more than 100 nuclear reactors to decommission over the next 30 years.

Strawbridge is not complaining that the commercial market has been delayed. “It will be a challenge for industry to staff all the DOE jobs. We’d be in trouble if the commercial market matured at the same time,’’ he says.

In another big area of federal work, Dept. of Defense work, the trend toward guaranteed fixed-price contracts for environmental cleanup is not sitting well with some of the major players. “It’s bad for business and bad for the market,” says Jack Scott, president of Parsons Group. It derives 69% of its revenue from federal contracts and slipped two notches on the overall list to No. 8. Earnings declined by 9% in 2003 to $919 million.

In a buyer’s market, “there are too many companies” chasing business, says Scott. The same thing happened a few years back to engineering and construction companies on power and petroleum projects and a big shake-out is coming in environmental work, he predicts.

MWH’s Uhler wonders whether the insurance industry has enough capacity to cover the risk attendant to a large range of contaminated sites. “The insurance market hasn’t been very friendly to cleanup contractors on large, complex sites since 9/11,” he says.

While it may look good for the government to “check off a lot of contaminated sites” by putting them under fixed price cleanup contracts, “it’s not a good deal if the companies default and go under,” Uhler says. Taxpayers should watch out for limited liability corporations that are being set up to book the contracts and then go out of business when a project hits snags. “It’s kind of absurd risk to take” for everyone concerned, Uhler says.

Parsons’ Scott says there is a fundamental difference in culture between the government and private sectors. “Business sees insurance as an added cost, while a government client sees it as a better way to forecast and budget the job,” he says. The government works with a fixed annual budget, while commercial clients focus on total cost.

ARCADIS was one of three companies that won fixed-price cleanup contracts from the U.S. Army Corps of engineers in May. The deal could be worth up to $200 million over three years. The firm jumped up 10 notches to No. 18, thanks to a 45%...